Chairman and Chief Executive Officer Jeff Bewkes said:“We’re off
to a strong start to 2017, as we continue to benefit from the
investments we’re making in the best content while also developing new
revenue streams that will drive growth and meet consumer demand for
great experiences built around their favorite programming and brands.
Warner Bros. delighted audiences in both film and television, with
global hits in Kong: Skull Island and The LEGO Batman Movie
and more series across broadcast for the current season than any other
studio. Turner had another successful airing of the NCAA Division I
Men’s Basketball Tournament across platforms, while CNN grew its total
day ratings by 21% among adults 25-54, and remained the leader in
digital news. Together, Turner and Warner Bros. also launched our new
Boomerang-branded SVOD service, adding to our growing portfolio of
products that are reaching consumers directly.”

Mr. Bewkes continued: “Home Box Office shined in the quarter highlighted
by our limited series Big Little Lies, which was both a critical
and cultural breakout. Last Week Tonight with John Oliver is
having its most-watched season to date, and we recently had the much
anticipated returns of Silicon Valley and Veep. Looking
ahead, we remain on track, pending completion of regulatory reviews and
receipt of consents, to close our merger with AT&T Inc. before the end
of 2017. We remain excited about the potential for this combination to
accelerate the pace of innovation in our businesses.”

Company Results

Revenues grew 6% to $7.7 billion due to increases at all operating
divisions, partially offset by higher intersegment eliminations.
Operating Income increased 4% to $2.1 billion and Adjusted Operating
Income increased 7% to $2.2 billion due to growth at Home Box Office and
Warner Bros. and lower corporate expenses, partially offset by a
decrease at Turner and higher intersegment eliminations.

The Company posted Diluted Income per Common Share from Continuing
Operations (“EPS”) of $1.80, up 23% compared to $1.46 for the prior year
quarter. Adjusted Diluted Income per Common Share from Continuing
Operations (“Adjusted EPS”) was $1.66,up 11%from
$1.49 for the prior year quarter.

For the first three months of 2017, Cash Provided by Operations from
Continuing Operations reached $1.5 billion and Free Cash Flow totaled
$1.4 billion.

Refer to “Use of Non-GAAP Financial Measures” in this release for a
discussion of the non-GAAP financial measures used in this release and
the reconciliations of the non-GAAP financial measures to the most
directly comparable GAAP financial measures.

Segment Performance

The schedule below reflects Time Warner’s financial performance for the
three months ended March 31, by line of business (millions).

Three Months Ended March 31,

2017

2016

Revenues:

Turner

$

3,088

$

2,906

Home Box Office

1,568

1,506

Warner Bros.

3,365

3,109

Intersegment eliminations

(286

)

(213

)

Total Revenues

$

7,735

$

7,308

Operating Income (Loss) (a):

Turner

$

1,170

$

1,239

Home Box Office

583

477

Warner Bros.

488

424

Corporate

(114

)

(140

)

Intersegment eliminations

(51

)

(4

)

Total Operating Income

$

2,076

$

1,996

Adjusted Operating Income (Loss) (a):

Turner

$

1,187

$

1,239

Home Box Office

595

486

Warner Bros.

510

426

Corporate

(88

)

(135

)

Intersegment eliminations

(51

)

(4

)

Total Adjusted Operating Income

$

2,153

$

2,012

Depreciation and Amortization:

Turner

$

54

$

51

Home Box Office

23

22

Warner Bros.

81

88

Corporate

7

6

Total Depreciation and Amortization

$

165

$

167

(a)

Operating Income (Loss) and Adjusted Operating Income (Loss) for the
three months ended March 31, 2017 and 2016 included restructuring
and severance costs of (millions):

Three Months Ended March 31,

2017

2016

Turner

$

(2

)

$

(1

)

Home Box Office

(2

)

(4

)

Warner Bros.

(9

)

(1

)

Corporate

1

1

Total Restructuring and Severance Costs

$

(12

)

$

(5

)

Presented below is a discussion of the performance of Time Warner’s
segments for the first quarter of 2017. Unless otherwise noted, the
dollar amounts in parentheses represent year-over-year changes.

TURNER

Revenues increased 6% ($182 million) to $3.1 billion, due to
increases of 12% ($175 million) in Subscription revenues and 16% ($29
million) in Content and other revenues, partially offset by a decline of
2% ($22 million) in Advertising revenues. Subscription revenues
benefited from higher domestic rates and growth at Turner’s
international networks, partially offset by lower domestic subscribers.
Content and other revenues increased due to higher domesticlicensing
revenues. The decline in Advertising revenues was primarily due to lower
delivery at certain domestic networks, partially offset by increases at
Turner’s sports and news businesses andgrowth at Turner’s
international networks.

Operating Income decreased 6% ($69 million) to $1.2 billion. The
growth in revenues was more than offset by higher expenses mainly due to
increased programming costs. Programming expenses increased 17%
primarily due to higher sports costs related to the first year of
Turner’s new agreement with the NBA and higher original programming
costs.

Adjusted Operating Income decreased 4% ($52 million) to $1.2
billion.

The NCAA Division I Men’s Basketball Tournament across TBS, TNT, truTV
and CBS was the second most-watched NCAA Tournament in 23 years and
viewership increased 16%. March Madness Live, the tournament’s streaming
product managed by Turner, set records for total live unique users,
total number of live streams and total live streaming hours. In the
first quarter of 2017, Adult Swim was the #1 ad-supported cable network
in total day among adults 18-34 and adults 18-49. Also in the first
quarter, among adults 25-54, CNN grew total day ratings 21% and had its
most-watched first quarter in 14 years. Turner, in conjunction with Fox
Sports Latin America, recently announced its acquisition of the rights
to first division soccer in Argentina. Turner, in conjunction with
Twenty-First Century Fox, Inc. and Viacom Inc., recently announced
OpenAP, a single platform that supports standardized audience targeting
as well as independent reporting and verification by an unaffiliated
third party.

HOME BOX OFFICE

Revenues increased 4% ($62 million) to $1.6 billion, due to an
increase of 5% ($66 million) in Subscription revenues, partially offset
by a decline of 1% ($4 million) in Content and other revenues.
Subscription revenues increased due to higher domestic rates and
subscribers and international growth. The decrease in Content and other
revenues was primarily due to lower home entertainment revenues,
partially offset by higher licensing revenues.

Operating Income increased 22% ($106 million) to $583 million,
reflecting the growth in revenues and lower selling, general and
administrative, programming and distribution expenses. Programming costs
decreased 2%, reflecting lower original programming expenses related to
a reduction in amortization resulting from using a longer estimated
utilization period for original programming beginning in the second
quarter of 2016, partially offset by higher acquired theatrical
programming expenses.

The limited series Big Little Lies reached over 8 million viewers
on average. The finale of the sixth and final season of Girls increased
viewership 43% from last season’s finale and was the most-watched finale
since Season 1. The premiere episode of the final season of The
Leftovers increased viewership 26% compared to the season two
premiere. The current season of Last Week Tonight with John Oliver
is the most-watched season to date and viewership for the current season
of Real Time with Bill Maher is up 22%.

WARNER BROS.

Revenues increased 8% ($256 million) to $3.4 billion, primarily
due to higher television and theatrical revenues partially offset by
lower videogames revenues. Television revenues increased primarily due
to higher domestic licensing revenuesrelated to certain library
series. Theatrical revenues grew due to an increased number and the mix
of box office releases, which included Kong: Skull Island and
The LEGO Batman Movie, as well as higher home entertainment revenues
primarily related to the release of Fantastic Beasts and Where to
Find Them and higher carryover revenue. Videogames revenues declined
due to a fewer number and the mix of releases in the current year period
and lower carryover revenue.

Operating Income increased 15% ($64 million) to $488 million, due
to the increase in revenues, partially offset by higher associated
theatrical and television costs of revenues and print and advertising
expenses.

From its opening through April 30, Kong: Skull Island grossed
over $560 million at the worldwide box office. For the 2016-2017
television season to date among adults 18-49 on broadcast, Warner Bros.
has the top-2 non-scripted series with The Voice and The
Bachelor, and The Big Bang Theory is both the #1 comedy and
#1 series. The Big Bang Theory has been renewed for two
additional seasons, with a prequel series, Young Sheldon, ordered
for the 2017-2018 television season. In April, Warner Bros. and Turner
launched a new subscription video-on-demand service in the U.S. under
the Boomerang brand, which offers new and library animated series from
Warner Bros.’ and Turner’s libraries. In addition, Warner Bros. recently
announced plans for two series, live-action drama Titans and
Season 3 of the animated series Young Justice, which will air on
a DC-branded direct-to-consumer digital service scheduled to launch in
2018.

CONSOLIDATED NET INCOME AND PER SHARE RESULTS

First-Quarter Results

For the three months ended March 31, 2017, the Company had Income from
Continuing Operations attributable to Time Warner Inc. shareholders of
$1.4 billion and EPS of $1.80. This compares to Income from Continuing
Operations attributable to Time Warner Inc. shareholders for the first
quarter of 2016 of $1.2 billion and EPS of $1.46. The increase in EPS
primarily reflects higher Operating Income, lower interest expense, and
a lower effective tax rate due in part to the Company’s adoption of new
guidance on accounting for tax benefits on equity-based compensation.

Adjusted EPS was $1.66for the three months ended March 31, 2017,
compared to $1.49 for last year’s first quarter.

For the first quarters of 2017 and 2016, the Company had Net Income
attributable to Time Warner Inc. shareholders of $1.4 billion and $1.2
billion, respectively.

USE OF NON-GAAP FINANCIAL MEASURES

The Company utilizes Adjusted Operating Income (Loss), Adjusted
Operating Income margin and Adjusted EPS, among other measures, to
evaluate the performance of its businesses. These measures are
considered important indicators of the operational strength of the
Company’s businesses. Some limitations of Adjusted Operating Income
(Loss), Adjusted Operating Income margin and Adjusted EPS are that they
do not reflect certain charges that affect the operating results of the
Company’s businesses and they involve judgment as to whether items
affect fundamental operating performance.

Adjusted Operating Income (Loss) is Operating Income (Loss) excluding
the impact of noncash impairments of goodwill, intangible and fixed
assets; gains and losses on operating assets (other than deferred gains
on sale-leasebacks); gains and losses recognized in connection with
pension and other postretirement benefit plan curtailments or
settlements; external costs related to mergers, acquisitions or
dispositions (including restructuring and severance costs associated
with dispositions), as well as contingent consideration related to such
transactions, to the extent such costs are expensed; amounts related to
securities litigation and government investigations; and the foreign
currency loss during the three months ended March 31, 2015 related to
the translation of net monetary assets denominated in Venezuelan
currency resulting from the Company’s change to the Simadi exchange rate
during the quarter ended March 31, 2015. Adjusted Operating Income
margin is defined as Adjusted Operating Income divided by Revenues.

Beginning with periods ending on or after October 1, 2016, Adjusted
Operating Income (Loss) is defined as Operating Income (Loss) excluding
the impact of noncash impairments of goodwill, intangible and fixed
assets; gains and losses on operating assets (other than deferred gains
on sale-leasebacks); gains and losses recognized in connection with
pension and other postretirement benefit plan curtailments or
settlements; costs related to the pending acquisition by AT&T Inc.
(including retention, restructuring and severance costs associated with
the transaction); external costs related to mergers, acquisitions or
dispositions (including restructuring and severance costs associated
with dispositions), as well as contingent consideration related to such
transactions, to the extent such costs are expensed; amounts related to
securities litigation and government investigations; and the foreign
currency loss during the three months ended March 31, 2015 related to
the translation of net monetary assets denominated in Venezuelan
currency resulting from the Company's change to the Simadi exchange rate
during the quarter ended March 31, 2015.

Adjusted EPS is Diluted Income per Common Share from Continuing
Operations attributable to Time Warner Inc. common shareholders with the
following items excluded from Income from Continuing Operations
attributable to Time Warner Inc. common shareholders: noncash
impairments of goodwill, intangible and fixed assets and investments;
gains and losses on operating assets (other than deferred gains on
sale-leasebacks), liabilities (including extinguishments of debt) and
investments, in each case including associated costs of the transaction;
gains and losses recognized in connection with pension and other
postretirement benefit plan curtailments or settlements; external costs
related to mergers, acquisitions, investments or dispositions (including
restructuring and severance costs associated with dispositions), as well
as contingent consideration related to such transactions, to the extent
such costs are expensed; amounts related to securities litigation and
government investigations; the foreign currency loss during the three
months ended March 31, 2015 related to the translation of net monetary
assets denominated in Venezuelan currency resulting from the Company’s
change to the Simadi exchange rate during the quarter ended March 31,
2015; and amounts attributable to businesses classified as discontinued
operations; as well as the impact of taxes and noncontrolling interests
on the above items and the Company’s share of the above items with
respect to equity method investments. Adjusted EPS is considered an
important indicator of the operational strength of the Company’s
businesses as this measure eliminates amounts that do not reflect the
fundamental performance of the Company’s businesses. The Company
utilizes Adjusted EPS, among other measures, to evaluate the performance
of its businesses both on an absolute basis and relative to its peers
and the broader market. Many investors also use an adjusted EPS measure
as a common basis for comparing the performance of different companies.

Beginning with periods ending on or after October 1, 2016, Adjusted EPS
is Diluted Income per Common Share from Continuing Operations
attributable to Time Warner Inc. common shareholders with the following
items excluded from Income from Continuing Operations attributable to
Time Warner Inc. common shareholders: noncash impairments of goodwill,
intangible and fixed assets and investments; gains and losses on
operating assets (other than deferred gains on sale-leasebacks),
liabilities (including extinguishments of debt) and investments, in each
case including associated costs of the transaction; gains and losses
recognized in connection with pension and other postretirement benefit
plan curtailments or settlements; costs related to the pending
acquisition by AT&T Inc. (including retention, restructuring and
severance costs associated with the transaction); external costs related
to mergers, acquisitions, investments or dispositions (including
restructuring and severance costs associated with dispositions), as well
as contingent consideration related to such transactions, to the extent
such costs are expensed; amounts related to securities litigation and
government investigations; the foreign currency loss during the three
months ended March 31, 2015 related to the translation of net monetary
assets denominated in Venezuelan currency resulting from the Company's
change to the Simadi exchange rate during the quarter ended March 31,
2015; and amounts attributable to businesses classified as discontinued
operations; as well as the impact of taxes and noncontrolling interests
on the above items and the Company's share of the above items with
respect to equity method investments.

For periods ending on or before December 31, 2016, Free Cash Flow has
been defined as Cash Provided by Operations from Continuing Operations
plus payments related to securities litigation and government
investigations (net of any insurance recoveries), external costs related
to mergers, acquisitions, investments or dispositions (including
restructuring and severance costs associated with dispositions), to the
extent such costs are expensed, contingent consideration payments made
in connection with acquisitions, and excess tax benefits from equity
instruments, less capital expenditures, principal payments on capital
leases and partnership distributions, if any.

On January 1, 2017, the Company adopted, on a prospective basis, new
accounting guidance that requires excess tax benefits from equity
instruments to be classified as a cash flow from operating activities in
the Consolidated Statement of Cash Flows. Previously, excess tax
benefits from equity instruments were classified as a cash flow from
financing activities and amounts related to such excess tax benefits
were added in the calculation of Free Cash Flow. Because of the
Company’s adoption of the new accounting guidance, such adjustment is no
longer necessary. Therefore, beginning with periods ending on or after
January 1, 2017, Free Cash Flow is defined as Cash Provided by
Operations from Continuing Operations plus payments related to
securities litigation and government investigations (net of any
insurance recoveries), external costs related to mergers, acquisitions,
investments or dispositions (including restructuring and severance costs
associated with dispositions), to the extent such costs are expensed,
and contingent consideration payments made in connection with
acquisitions, less capital expenditures, principal payments on capital
leases and partnership distributions, if any. The Company uses Free Cash
Flow to evaluate the performance and liquidity of its businesses and
considers Free Cash Flow when making decisions regarding strategic
investments, dividends and share repurchases. The Company believes Free
Cash Flow provides useful information to investors because it is an
important indicator of the Company’s liquidity, including its ability to
reduce net debt, make strategic investments, pay dividends to common
shareholders and repurchase stock.

A general limitation of these measures is that they are not prepared in
accordance with U.S. generally accepted accounting principles and may
not be comparable to similarly titled measures of other companies due to
differences in methods of calculation and excluded items. Adjusted
Operating Income (Loss), Adjusted EPS and Free Cash Flow should be
considered in addition to, not as a substitute for, the Company’s
Operating Income (Loss), Diluted Income per Common Share from Continuing
Operations and various cash flow measures (e.g., Cash Provided by
Operations from Continuing Operations), as well as other measures of
financial performance and liquidity reported in accordance with U.S.
generally accepted accounting principles.

ABOUT TIME WARNER INC.

Time Warner Inc., a global leader in media and entertainment with
businesses in television networks and film and TV entertainment, uses
its industry-leading operating scale and brands to create, package and
deliver high-quality content worldwide on a multi-platform basis.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements
are based on management’s current expectations or beliefs, and are
subject to uncertainty and changes in circumstances. Actual results may
vary materially from those expressed or implied by the statements herein
due to changes in economic, business, competitive, technological,
strategic and/or regulatory factors and other factors affecting the
operation of Time Warner’s businesses, including the pending merger with
AT&T Inc. More detailed information about these factors may be found in
filings by Time Warner with the Securities and Exchange Commission,
including its most recent Annual Report on Form 10-K and subsequent
Quarterly Reports on Form 10-Q. Time Warner is under no obligation to,
and expressly disclaims any such obligation to, update or alter its
forward-looking statements, whether as a result of new information,
future events, or otherwise.

INFORMATION ON CONFERENCE CALL

The Company’s conference call can be heard live at 8:30 am ET on
Wednesday, May 3, 2017. To listen to the call, visit www.timewarner.com/investors.

TIME WARNER INC.

CONSOLIDATED BALANCE SHEET

(Unaudited; millions, except share amounts)

March 31, 2017

December 31, 2016

ASSETS

Current assets

Cash and equivalents

$

1,450

$

1,539

Receivables, less allowances of $848 and $981

8,540

8,699

Inventories

1,983

2,062

Prepaid expenses and other current assets

935

1,185

Total current assets

12,908

13,485

Noncurrent inventories and theatrical film and television production
costs

7,923

7,916

Investments, including available-for-sale securities

3,412

3,337

Property, plant and equipment, net

2,462

2,510

Intangible assets subject to amortization, net

738

783

Intangible assets not subject to amortization

7,005

7,005

Goodwill

27,738

27,752

Other assets

3,463

3,178

Total assets

$

65,649

$

65,966

LIABILITIES AND EQUITY

Current liabilities

Accounts payable and accrued liabilities

$

6,766

$

7,192

Deferred revenue

588

564

Debt due within one year

808

1,947

Total current liabilities

8,162

9,703

Long-term debt

22,402

22,392

Deferred income taxes

2,620

2,678

Deferred revenue

493

486

Other noncurrent liabilities

6,515

6,341

Redeemable noncontrolling interest

30

29

Equity

Common stock, $0.01 par value, 1.652 billion and 1.652 billion
shares issued and 775 million and 772 million shares outstanding

17

17

Additional paid-in capital

146,279

146,780

Treasury stock, at cost (877 million and 880 million shares)

(47,313

)

(47,497

)

Accumulated other comprehensive loss, net

(1,527

)

(1,510

)

Accumulated deficit

(72,031

)

(73,455

)

Total Time Warner Inc. shareholders’ equity

25,425

24,335

Noncontrolling interest

2

2

Total equity

25,427

24,337

Total liabilities and equity

$

65,649

$

65,966

See accompanying notes.

TIME WARNER INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited; millions, except per share amounts)

Three Months Ended March 31,

2017

2016

Revenues

$

7,735

$

7,308

Costs of revenues

(4,333

)

(4,005

)

Selling, general and administrative

(1,275

)

(1,251

)

Amortization of intangible assets

(45

)

(48

)

Restructuring and severance costs

(12

)

(5

)

Asset impairments

(1

)

(3

)

Gain on operating assets, net

7

—

Operating income

2,076

1,996

Interest expense, net

(259

)

(284

)

Other income (loss), net

76

(40

)

Income from continuing operations before income taxes

1,893

1,672

Income tax provision

(470

)

(498

)

Income from continuing operations

1,423

1,174

Discontinued operations, net of tax

—

40

Net income

1,423

1,214

Less Net loss attributable to noncontrolling interests

1

—

Net income attributable to Time Warner Inc. shareholders

$

1,424

$

1,214

Amounts attributable to Time Warner Inc. shareholders:

Income from continuing operations

$

1,424

$

1,174

Discontinued operations, net of tax

—

40

Net income

$

1,424

$

1,214

Per share information attributable to Time Warner Inc. common
shareholders:

Basic income per common share from continuing operations

$

1.84

$

1.48

Discontinued operations

—

0.05

Basic net income per common share

$

1.84

$

1.53

Average basic common shares outstanding

773.6

790.7

Diluted income per common share from continuing operations

$

1.80

$

1.46

Discontinued operations

—

0.05

Diluted net income per common share

$

1.80

$

1.51

Average diluted common shares outstanding

789.3

802.3

Cash dividends declared per share of common stock

$

0.4025

$

0.4025

See accompanying notes.

TIME WARNER INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

Three Months Ended March 31,

(Unaudited; millions)

2017

2016

OPERATIONS

Net income

$

1,423

$

1,214

Less Discontinued operations, net of tax

—

(40

)

Net income from continuing operations

1,423

1,174

Adjustments for noncash and nonoperating items:

Depreciation and amortization

165

167

Amortization of film and television costs

2,203

2,112

Asset impairments

1

3

(Gain) loss on investments and other assets, net

(166

)

11

Equity in losses of investee companies, net of cash distributions

93

50

Equity-based compensation

57

108

Deferred income taxes

(44

)

113

Changes in operating assets and liabilities, net of acquisitions

(2,266

)

(2,981

)

Cash provided by operations from continuing operations

1,466

757

Cash used by operations from discontinued operations

(5

)

(4

)

Cash provided by operations

1,461

753

INVESTING ACTIVITIES

Investments in available-for-sale securities

—

(5

)

Investments and acquisitions, net of cash acquired

(168

)

(93

)

Capital expenditures

(98

)

(75

)

Other investment proceeds

240

18

Cash used by investing activities

(26

)

(155

)

FINANCING ACTIVITIES

Borrowings

—

2

Debt repayments

(1,144

)

(152

)

Proceeds from exercise of stock options

56

56

Excess tax benefit from equity instruments

—

27

Principal payments on capital leases

(3

)

(3

)

Repurchases of common stock

—

(711

)

Dividends paid

(316

)

(322

)

Other financing activities

(117

)

(110

)

Cash used by financing activities

(1,524

)

(1,213

)

DECREASE IN CASH AND EQUIVALENTS

(89

)

(615

)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

1,539

2,155

CASH AND EQUIVALENTS AT END OF PERIOD

$

1,450

$

1,540

See accompanying notes.

TIME WARNER INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Time Warner Inc. (“Time Warner” or the “Company”) is a leading media and
entertainment company, whose businesses include television networks, and
film and TV entertainment. Time Warner classifies its operations into
three reportable segments: Turner: consisting principally of
cable networks and digital media properties; Home Box Office:
consisting principally of premium pay television services and a service
that delivers video content to consumers over the internet (“OTT
service”) domestically and premium pay, basic tier television and OTT
services internationally; and Warner Bros.: consisting
principally of television, feature film, home video and videogame
production and distribution.

On October 22, 2016, the Company entered into an Agreement and Plan of
Merger with AT&T Inc. (“AT&T”), West Merger Sub, Inc., and West Merger
Sub II, LLC, pursuant to which the Company will be acquired by AT&T for
a combination of $53.75 and shares of AT&T stock. At the time of entry
into the merger agreement, the value of the merger consideration was
$107.50 per share of Time Warner common stock and the value will vary,
subject to a collar, prior to the closing of the transaction. Time
Warner shareholders adopted the merger agreement at a special meeting of
shareholders held on February 15, 2017. The merger is conditioned on the
receipt of certain antitrust and other required regulatory consents. The
merger is expected to close before year-end 2017.

Note 2. INTERSEGMENT TRANSACTIONS

Revenues recognized by Time Warner’s segments on intersegment
transactions are as follows (millions):

Three Months Ended March 31,

2017

2016

Intersegment Revenues

Turner

$

21

$

20

Home Box Office

2

3

Warner Bros.

263

190

Total intersegment revenues

$

286

$

213

Note 3. WARNER BROS. HOME VIDEO AND ELECTRONIC DELIVERY REVENUES

Home video and electronic delivery of theatrical and television product
revenues are as follows (millions):

Three Months Ended March 31,

2017

2016

Home video and electronic delivery of theatrical product revenues

$

368

$

321

Home video and electronic delivery of television product revenues

87

94

Note 4. SUMMARY OF DISCONTINUED OPERATIONS

For the three months ended March 31, 2016, Discontinued operations, net
of tax was income of $40 million ($0.05 of diluted income from
discontinued operations per common share), related to the recognition of
certain foreign tax benefits associated with the tax attributes of
Warner Music Group, which the Company disposed of in 2004.

TIME WARNER INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Unaudited; dollars in millions)

Reconciliations of

Adjusted Operating Income (Loss) to Operating Income (Loss) and

Adjusted Operating Income Margin to Operating Income Margin

Three Months Ended March 31, 2017(a)

AdjustedOperatingIncome (Loss)

AssetImpairments

Gain (Loss) onOperatingAssets, Net

AT&T MergerCosts

Other

OperatingIncome (Loss)

Turner

$

1,187

$

—

$

6

$

(22

)

$

(1

)

$

1,170

Home Box Office

595

—

—

(12

)

—

583

Warner Bros.

510

(1

)

1

(22

)

—

488

Corporate

(88

)

—

—

(26

)

—

(114

)

Intersegment eliminations

(51

)

—

—

—

—

(51

)

Time Warner

$

2,153

$

(1

)

$

7

$

(82

)

$

(1

)

$

2,076

Margin(b)

27.8

%

—

%

0.1

%

(1.1

)%

—

%

26.8

%

Three Months Ended March 31, 2016(a)

AdjustedOperatingIncome (Loss)

AssetImpairments

Gain (Loss) onOperatingAssets, Net

AT&T MergerCosts

Other

OperatingIncome (Loss)

Turner

$

1,239

$

—

$

—

$

—

$

—

$

1,239

Home Box Office

486

—

—

—

(9

)

477

Warner Bros.

426

(1

)

—

—

(1

)

424

Corporate

(135

)

(2

)

—

—

(3

)

(140

)

Intersegment eliminations

(4

)

—

—

—

—

(4

)

Time Warner

$

2,012

$

(3

)

$

—

$

—

$

(13

)

$

1,996

Margin(b)

27.5

%

—

%

—

%

—

%

(0.2

)%

27.3

%

Please see below for additional information on items affecting
comparability.

____________

(a)

Descriptions of the adjustments presented in the table follow the
reconciliations of Adjusted EPS to Diluted Income per Common Share
from Continuing Operations.

(b)

Adjusted Operating Income margin is defined as Adjusted Operating
Income divided by Revenues. Operating Income margin is defined as
Operating Income divided by Revenues.

TIME WARNER INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Unaudited; millions, except per share amounts)

Reconciliation of

Adjusted EPS to Diluted Income per Common Share from Continuing
Operations attributable to Time Warner Inc. common shareholders

Three Months Ended March 31,

2017

2016

Asset impairments

$

(1

)

$

(3

)

Gain on operating assets, net

7

—

Costs related to the AT&T merger

(82

)

—

Other

(1

)

(13

)

Impact on Operating Income

(77

)

(16

)

Investment gains (losses), net

159

(11

)

Amounts related to the separation or disposition of former Time
Warner segments

(4

)

(4

)

Items affecting comparability relating to equity method investments

(1

)

9

Pretax impact

77

(22

)

Income tax impact of above items

39

4

Impact of items affecting comparability on income from continuing
operations

$

116

$

(18

)

Amounts attributable to Time Warner Inc. shareholders:

Income from continuing operations

$

1,424

$

1,174

Less Impact of items affecting comparability on income from
continuing operations

116

(18

)

Adjusted income from continuing operations

$

1,308

$

1,192

Per share information attributable to Time Warner Inc. common
shareholders:

Diluted income per common share from continuing operations

$

1.80

$

1.46

Less Impact of items affecting comparability on diluted income per
common share from continuing operations

0.14

(0.03

)

Adjusted EPS

$

1.66

$

1.49

Average diluted common shares outstanding

789.3

802.3

Asset Impairments

During the three months ended March 31, 2017, the Company recognized
miscellaneous asset impairments of $1 million at the Warner Bros.
segment. During the three months ended March 31, 2016, the Company
recognized miscellaneous asset impairments of $3 million, consisting of
$2 million at Corporate and $1 million at the Warner Bros. segment.

Gain on Operating Assets, Net

During the three months ended March 31, 2017, the Company recognized
miscellaneous gains on operating assets of $7 million, consisting of $6
million at the Turner segment and $1 million at the Warner Bros. segment.

Costs related to the AT&T merger

For the three months ended March 31, 2017, the Company recognized $82
million of costs related to the AT&T merger, consisting of $26 million
at Corporate, $22 million at the Turner segment, $22 million at the
Warner Bros. segment and $12 million at the Home Box Office segment.
These costs reflected $18 million of external transaction costs and $64
million of costs from employee retention programs (as discussed below).
Approximately $80 million of these costs are included in Selling,
general and administrative expenses in the accompanying Consolidated
Statement of Operations and the remainder in Costs of revenues in the
accompanying Consolidated Statement of Operations.

In connection with entering into the Merger Agreement, as of March 31,
2017, the Company has granted 5.7 million special retention restricted
stock units (“Special Retention RSUs”) to certain employees of Time
Warner and its divisions, including all executive officers of Time
Warner. Half of the Special Retention RSUs will vest 25% per year on
each of the first four anniversaries of February 15, 2017, and the
remaining half will vest 25% per year on each of the first four
anniversaries of February 15, 2018. Pursuant to the Special Retention
RSU agreements, vesting as a result of retirement is not permitted
unless the employee retires after the merger has closed. In addition,
the awards do not accelerate automatically following the closing of the
merger. Instead, the employee must remain employed following the
closing, and the awards will vest only upon the scheduled vesting date
or upon termination of employment under certain circumstances, such as
termination without cause, for good reason or due to retirement.

In addition, certain employees of Time Warner and its divisions,
including executive officers other than the Chairman and CEO, have
received or will receive a cash retention award. Half of the award will
become payable upon the closing of the merger, and the remaining half
will become payable six months thereafter, in both cases, subject to
continued employment on the relevant payment date. Payment will also be
made upon termination without cause or for good reason.

Other

For the three months ended March 31, 2017, Other includes external costs
related to mergers, acquisitions or dispositions of $1 million at the
Turner segment. For the three months ended March 31, 2016, Other
includes external costs related to mergers, acquisitions or dispositions
of $4 million, consisting of $3 million at Corporate and $1 million at
the Warner Bros. segment. For the three months ended March 31, 2016,
Other also includes $9 million of expenses at the Home Box Office
segment related to Home Box Office’s withdrawal from a multiemployer
benefit plan. External costs related to mergers, acquisitions or
dispositions and the accrued benefit plan withdrawal expenses are
included in Selling, general and administrative expenses in the
accompanying Consolidated Statement of Operations.

Investment Gains (Losses), Net

Investment gains (losses), net are included in Other income (loss), net
in the accompanying Consolidated Statement of Operations. The detail of
Investment gains (losses), net is shown in the table below (millions):

Three Months Ended March 31,

2017

2016

Sale of interest in Omni Atlanta hotel joint venture

$

99

$

—

Fair value adjustments (a)

54

(19

)

Gains on other investments

6

8

Investment gains (losses), net

$

159

$

(11

)

____________

(a)

Related to warrants to purchase common stock of Central European
Media Enterprises Ltd. held by the Company.

Amounts Related to the Separation or Disposition of Former Time
Warner Segments

For both the three months ended March 31, 2017 and 2016, the Company
recognized $4 million of losses related to the disposition of former
Time Warner segments, primarily reflecting pension and other retirement
benefits related to employees and former employees of Time Inc. These
amounts have been reflected in Other income (loss), net in the
accompanying Consolidated Statement of Operations.

Items Affecting Comparability Relating to Equity Method Investments

For the three months ended March 31, 2017, the Company recognized $1
million of losses related to its share of investment losses recorded by
equity method investees. For the three months ended March 31, 2016, the
Company recognized $9 million of income primarily related to its share
of investment gains recorded by equity method investees. These amounts
have been reflected in Other income (loss), net in the accompanying
Consolidated Statement of Operations.

Income Tax Impact

The income tax impact reflects the estimated tax provision or tax
benefit associated with each item affecting comparability using the
effective tax rate for the item. The estimated tax provision or tax
benefit can vary based on certain factors, including the taxability or
deductibility of the item and the applicable tax jurisdiction for the
item. For the three months ended March 31, 2017, the income tax impact
includes a $69 million benefit primarily reflecting the reversal of a
valuation allowance related to the use of capital loss carryforwards to
offset the gain on the sale by the Turner segment of its interest in the
joint venture that owns the Omni Atlanta hotel and the expected use of
capital loss carryforwards in connection with the Turner segment’s entry
into an agreement to sell its Atlanta broadcast television station,
which closed in the second quarter of 2017.

TIME WARNER INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Unaudited; millions)

Reconciliation of Free Cash Flow to Cash Provided by Operations
from Continuing Operations